Outsourcing of Fill-Finish Operations Continues

by Eric Langer, President and Managing Partner, BioPlan Associates, Inc.

Fill-finish operations continue to be one of the most heavily outsourced activities in the biopharmaceutical manufacturing market today. This traditional field for outsourcing is something of a paradox. On one hand, this is a relatively low value-added operation (compared to manufacturing, or development, for example); on the other hand, it deals with the finished product in its most valuable state, where the risks of a contamination event or other failure are at their highest. Perhaps due to the stability of this segment, it has seen consistent growth for contract manufacturing organizations (CMOs) over the years, 10-15% annually, keeping pace with overall product manufacturing markets.

Results from our 10th Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production1 suggest that this growth pattern is not likely to be leveling out, although there are some indications of a slight slowdown. As part of our study, we estimated the average percentage of outsourcing done by biomanufacturers today across 23 different areas. We found that facilities, on average, outsource 31.8% of their fill/finish operations, a very close second only to analytical testing/bioassays (32.3%). We also found that fill/finish operations are outsourced by over 70% of respondents, a significant 11% rise from 64% last year, and more than 15% above levels in 2010 and 2009.

That makes fill-finish operations one of the most widely outsourced activities today. Leading the pack is outsourcing of analytical testing/bioassays, by 90.1% of respondents, followed by plant maintenance services (81.5%), toxicity testing (75.3%), and validation services (71.6%). Fill-finish, at 70.4%, is the only other of the 23 areas being outsourced by at least two-thirds of the industry.

Interestingly, though, our data suggests that fill/finish operations are not being as outsourced as heavily this year. Although more respondents are outsourcing these operations to CMOs, the estimated percentage of fill/finish operations outsourced actually decreased from last year’s leading 34.5%. In fact, fill/finish operations had been the most heavily outsourced (by average percent estimated outsourced) for each of the 3 years prior to this year’s drop-off. The fall-off might be attributable to the increased percentage of facilities that are outsourcing these operations: these newer clients might be starting off tepidly, diluting the overall estimate. Alternatively, the fill-finish operations that are being outsourced might simply be on a smaller scale than last year.

A Strong Market

Taken together, the data indicates that the market for fill-finish outsourcing remains strong, even if slightly slowed in the past year. That same pattern applies when looking forward. The trend is towards more outsourcing of these operations in the future, as more and more “high-end” fill-finish operations will be used, such as multi-use adjustable syringes, prefilled syringes, cartridge systems, and others. Correspondingly, 19.4% of respondents said they believe fill/finish operations will be outsourced at “significantly higher levels” in the next 24 months. But while that’s a notable percentage (and only behind analytical testing/bioassays – at 25.8%), it too represents a decrease, from 26.2% projecting such changes last year, 23.1% in 2011 and 24.8% in 2010.

Still, that decrease could be emblematic of a wider leveling off in outsourcing – most of the top activities that last year had been projected for significant increases took a step back in this year’s survey. For example, projected future increases of analytical testing/bioassays dropped from 35.4% of respondents last year to 25.8% this year.

That doesn’t necessarily mean outsourcing is slowing down, but instead perhaps that the industry is further along the adoption curve for some of these outsourcing practices, particularly for a mature area like fill-finish operations. It also could be a reflection of an industry-wide trend towards smaller-scale manufacturing projects. With the advent of biosimilars, particularly in the US, there should be an increasing number of projects for fill-finish CMOs to take on, but on a smaller scale.

Small Scale Projects Lead Demand

The increasing demand – for smaller-scale projects – should drive CMO pricing up, even if CMO competition dampens those increases. In last year’s survey, CMO respondents projected that they would increase pricing for fill-finish areas by an average of 3.2%2. That was among the higher price increases we found, above average price hikes for services such as analytical development (1.9%) and clinical product manufacturing (1.6%), and slightly exceeding custom services (3.1%) and analytical assays (3.2%). (Some areas were slated for pricing cuts, including process development services for formulation, at -0.8%, and process development services for up and downstream, at -2.1%.

The 3.2% increase in pricing predicted by last year’s respondents was a continuation of a multi-year trend towards higher prices for fill-finish services. In 2011, vendors signaled a 1.7% average increase in pricing for fill-finish services, up from an expected 0.5% rise in 2010. That’s an interesting trend, given that it’s a competitive market that sometimes suffers from excess capacity, because CMOs need to operate at a large scale to be optimally efficient on a cost level. Increasing demand from end-users, though, allows CMOs to keep their equipment active and to cut down on unused capacity.

One might be tempted to attribute our finding that fill-finish outsourcing is being outsourced to lesser degrees this year to the price hikes we’ve observed over the past few years. But vendors have worked hard to ensure that their products incrementally improve manufacturing efficiency and cost-effectiveness. A smaller than 4% annual increase in prices is generally in line with high-tech industry-wide inflation and has not proven to be a problem for the biopharmaceutical industry, which keeps on growing at a higher rate than these costs.

But in today’s cost-conscious environment, any significant price increases must be matched by advantages or improvements in quality, performance and/or cost savings. In the end, price hikes can only be supported by steady levels of demand growth or efficiencies gained through innovation. And on that front, fill-finish operations have less of a solid footing. Only 8.7% of vendors we surveyed this year cited finishing: lyophilization as a new technology or product development area their company is working on in biomanufacturing. The same small percentage indicated finishing: packaging materials to be an area of innovation focus. Both are down from last year.

Separate study results that this isn’t an area of keen innovation interest for biomanufacturers, either: just 19.4% of end-users cited fill-finish services as a new product development area of interest, though that was up from 15.6% last year, and 13.2% the year before. Much of this is likely in the areas of single use technologies for fill-finish.

So it seems more likely that CMO pricing for fill-finish operations will work in concert with demand from end-users. Our data – and industry-wide trends – suggest that outsourcing of fill-finish operations will become even more firmly entrenched within the industry in the next few years, but that fill-finish CMOs will need to adapt (and some might merge) to an increasing number of projects to compete for that are on a smaller-scale.

Eric S. Langer is president and managing partner at BioPlan Associates, Inc., a biotechnology and life sciences marketing research and publishing firm established in Rockville, MD in 1989. He is editor of numerous studies, including “Biopharmaceutical Technology in China,” “Advances in Large-scale Biopharmaceutical Manufacturing”, and many other industry reports. elanger@bioplanassociates.com 301-921-5979. www.bioplanassociates.com

Survey Methodology: The 2013 Tenth Annual Report and Survey of Biopharmaceutical Manufacturing Capacity and Production yields a composite view and trend analysis from over 300 responsible individuals at biopharmaceutical manufacturers and contract manufacturing organizations (CMOs) in 29 countries. The methodology also included over 180 direct suppliers of materials, services and equipment to this industry. This year’s study covers such issues as: new product needs, facility budget changes, current capacity, future capacity constraints, expansions, use of disposables, trends and budgets in disposables, trends in downstream purification, quality management and control, hiring issues, and employment. The quantitative trend analysis provides details and comparisons of production by biotherapeutic developers and CMOs. It also evaluates trends over time, and assesses differences in the world’s major markets in the U.S. and Europe